Douglas-fir stand on Vancouver Island

 

Welcome to the long-awaited, fourth and final post in our “Managed Forest Fundamentals” series.

Because it’s been a while, here’s a quick recap: Inspired by the realization that not everyone is as familiar with the Managed Forest Program as we are, we set out to rectify the situation by providing information about the fundamentals of the program.

The four fundamentals are:

  1. A Provincial Regulatory Model
  2. The Managed Forest Council
  3. Key Environmental Protections
  4. Incentives for Landowners

The first post shed light on the foundations of the provincial regulatory model. In our second post, we worked to dispel any confusion between the Private Forest Landowners Association (PFLA) and the Managed Forest Council (MFC), while the third post emphasized the legislation and regulations in place to protect public environmental values.

This fourth and final post relates to incentives for landowners by highlighting potential challenges that can negatively impact the viability of tree growing on private lands in BC, and the policy measures currently maintained to address them.

The challenges include:

  • Carrying costs
  • Uncompetitive property tax rates
  • Timing of tax liabilities
  • Uncertainty of owner’s freedom to manage
  • Protection of private property rights

Carrying costs

Growing a crop of trees is a risky, long-term proposition. Trees can take up to a century to mature. Excessive carrying costs, accumulated over time, can easily eliminate the business case for growing a crop of trees.

No business can survive if it spends more than it receives in revenues, so it’s imperative to focus on minimizing wherever possible the burden of significant inputs such as the cost of land and property taxes, or early-rotation silvicultural investments.

In the case of tree growing, the cumulative negative impact of up to a century of interest of the cost of money expended on anything at all can be massive in the long run, so the name of the game is to minimize costs and shorten the crop rotation. It’s essential that owners are able to minimize the cost of brushing treatments, minimize the cost and impact of red tape, and avoid unnecessary expenses.

Public policy affects the cost of wildfire protection, herbicide use, and treatment of residues from the previous harvest. The ability to use late-rotation fertilizer, improved seedling stock, and the freedom to harvest the crop on an economic rotation also make a big difference.

Uncompetitive property tax rates

Forestry is a very global, very competitive business, and BC is an exporting jurisdiction heavily dependent on international trade. To stay in business, BC forestry operators must compete with producers from around the world. Since property tax comprises such a significant portion of the cost of growing timber on private land, excessively high tax costs can dissuade owners from growing trees because there is no business case for putting seedlings in the ground.

Compared to competing jurisdictions around the world, BC has relatively high property taxes for forested lands. When setting property tax policy, it is important to take a global view, and ensure that BC’s competitive position is not undermined or squandered.

The managed forest program includes property tax incentives that are intended to encourage owners to plant trees and grow timber by making it worthwhile to do so instead of pursuing other land uses, or neglecting the land entirely. The incentive is to assign a distinct assessed value based on the capacity of the land and tax that value accordingly.

A similar public policy approach is used across North America, and the general idea can be compared to property tax incentives employed to encourage agriculture on private lands. The BC managed forest program has its origins in the 1940’s.

Timing of tax liabilities

The second element of the BC managed forest property tax incentive is to defer the taxation on the value of the growing crop until after that crop is actually harvested. The intent of this policy is to minimize the property tax burden during the phase when the land has zero cash flow. Clearly, without cash flow, the owner would have to borrow money or divert it from other sources in order to meet the tax burden while the crop was still growing, and this would be a significant disincentive against growing trees.

Uncertainty of owner’s freedom to manage

The Private Managed Forest Land Act is built around the understanding and arrangement that forest owners commit to grow and harvest trees, and protect key public environmental values in exchange for receiving some policy certainty and property tax incentives from government. This arrangement is a partnership, with the intention that owners provide the land and the capital and take all the risks, and government maintains the policy climate and tax regime that encourages the activity.

The importance of allowing the forest owners freedom to manage is very simple, and is well illustrated by comparing the growing of trees to the growing of an agricultural crop. Growers – whether they are raising turnips or potatoes or trees – need flexibility to be able to react and adapt to the changing circumstances that impact the nurture and marketing of the crop. Storm events, insect and disease attacks can wreak havoc with a crop of timber, and owners need to be able to move fast to take preventative or remedial actions.

Without losing sight of the owner’s responsibility to follow the law and protect key public environmental values, complex prescriptive government rules and permitting processes can result in unnecessary delays, and lost opportunities to make the best choices.

An appropriate level of operational flexibility and freedom to make the right day-to-day management decision can make or break an enterprise. The Managed Forest Program is designed to balance the protection of the environment with the needs of the operation.

Protection of private property rights

The wants and needs of society are constantly evolving. It’s not unusual for neighbouring communities to change their appetite for timber harvesting before a crop that has received substantial investment is ready for harvest.

Also, government may decide that a piece of private forest land has desirable attributes for recreational or conservation purposes. The commitment from government to protect private property rights is merely an acknowledgement that the forest owner has made significant investment in land, time, capital and risk in order to have the opportunity to harvest a crop of timber at some point in the future.

When public policy constrains or prevents the owner from harvesting that crop and recouping the related expenses, it’s only fair that the owner be adequately compensated for the loss of value. Without such certainty, there would be a massive disincentive against growing timber crops. Forest owners need certainty that only government can provide.