This is the accessible text file for GAO report number GAO-03-596R entitled 'Natural Resources: Status of Merchantable Material Contracting Pilot Program Authorized by the Secure Rural Schools and Community Self-Determination Act of 2000' which was released on May 09, 2003. This text file was formatted by the U.S. General Accounting Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. 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United States General Accounting Office: Washington, DC 20548: May 9, 2003: Congressional Committees: Subject: Natural Resources: Status of Merchantable Material Contracting Pilot Program Authorized by the Secure Rural Schools and Community Self-Determination Act of 2000: The Secure Rural Schools and Community Self-Determination Act of 2000, enacted October 30, 2000,[Footnote 1] mandated that we assess a merchantable material contracting pilot program authorized by the act and report on our assessment by September 30, 2003. The pilot program encompasses certain forest-related projects undertaken as a result of the act and mandates the use of separate contracts for the harvesting or collection of merchantable material, such as timber, and the sale of that material rather than a single contract for both activities. In summary, based on our preliminary work, of the approximately 1,300 forest-related projects approved at the time of our review, only 13 are expected to generate merchantable material and, thus, be eligible for the pilot program. Only 6 of these 13 are expected to be conducted within the pilot program--and none of the 6 has yet been implemented. Given the preliminary nature of the pilot program and the small number of projects, a full-scale assessment by September 30, 2003, would provide very limited information. We briefed your offices on these findings and reached agreement that no further assessment of the pilot program will be conducted at this time. Also as agreed, we are providing this letter summarizing program activity to date. Background: Since the early 20th century, counties containing federal lands have been compensated for the tax-exempt status of federal lands within their boundaries. This compensation generally represents a percentage of the receipts generated on federal lands through the sale or use of natural resources--such as timber, minerals, recreation, or grazing permits. Localities generally are required to use these funds for roads, schools, or other services and facilities. However, the steep decline in federal timber sales during the 1990s resulted in a significant decrease in federal payments to counties that historically depended on timber receipts. The Secure Rural Schools and Community Self-Determination Act of 2000 was enacted, in part, to address the decline in federal payments by stabilizing payments to counties that depended on revenues from timber sales on Forest Service and certain Bureau of Land Management (BLM) lands.[Footnote 2] Under the act, each county may continue to receive a portion of the revenues generated from these lands or can choose instead to receive annual payments equal to the average of the three highest annual revenue payments to the county from fiscal year 1986 through fiscal year 1999. Counties electing the second option generally must use 80 to 85 percent of the payments on certain county services such as maintaining roads and schools.[Footnote 3] The remainder can be (1) reserved by the county for special projects that benefit federal lands, known as Title II projects; (2) reserved by the county for county projects related to federal lands (such as search-and-rescue work on federal lands), known as Title III projects; or (3) returned to the Treasury. The merchantable material contracting pilot program applies only to Title II projects. Title II projects are to be proposed by local resource advisory committees and must be approved by Forest Service or BLM; these agencies then carry out approved projects using the reserved Title II funds. Projects are to improve maintenance of existing infrastructure, enhance forest ecosystems, and restore and improve land health and water quality. The act requires that a certain percentage of Title II projects nationwide that are expected to generate merchantable material must be implemented under the pilot program, using separate contracts for harvesting or collecting the material and selling it.[Footnote 4] The authority to initiate Title II projects under the act expires September 30, 2006. Few Pilot Projects Have Been Approved, and None Have Yet Been Implemented: According to our analysis, as of February and March 2003, the Forest Service or BLM had approved 1,268 Title II projects. Of these, 13 projects are expected to generate merchantable material: 1 began in fiscal year 2002 and is ongoing, 9 are expected to begin in fiscal year 2003, and the remainder to begin in fiscal year 2004 or later.[Footnote 5] Of the 10 projects underway or expected to begin in fiscal year 2003, 6 are expected to be included in the pilot program using separate contracts for harvesting and selling merchantable material. All six pilot program projects are in Oregon, and all involve removing small- diameter trees. As of March 2003, no harvesting or collection of merchantable material had begun on any of the six projects. Table 1 shows the projects' locations and anticipated start dates. Table 1: Title II Projects to Be Conducted Under the Merchantable Material Contracting Pilot Program: Project name: Boaz Forest Health and Small Diameter Utilization; Project location (county and state): Jackson (OR); Title II funds reserved: $108,362; [Empty]; Estimated start date: Spring 2003; [Empty]; Managing agency: BLM. Project name: Density Reduction-Chetco; Project location (county and state): Curry (OR); Title II funds reserved: 75,000; [Empty]; Estimated start date: Spring 2003; [Empty]; Managing agency: Forest Service. Project name: Small Tree Treatment Project-Illinois Valley; Project location (county and state): Josephine (OR); Title II funds reserved: 67,500; [Empty]; Estimated start date: Summer 2003; [Empty]; Managing agency: Forest Service. Project name: Waters Creek Fuel Reduction; Project location (county and state): Josephine (OR); Title II funds reserved: 146,250; [Empty]; Estimated start date: Spring 2003; [Empty]; Managing agency: Forest Service. Project name: Westside Small Tree-Chetco; Project location (county and state): Curry (OR); Title II funds reserved: 75,000; [Empty]; Estimated start date: Summer 2003; [Empty]; Managing agency: Forest Service. Project name: Westside Small Tree-Gold Beach; Project location (county and state): Curry (OR); Title II funds reserved: 68,550; [Empty]; Estimated start date: Summer 2003; [Empty]; Managing agency: Forest Service. Source: Forest Service and BLM. [End of table] Because of the small number of approved projects expected to be conducted within the merchantable material contracting pilot program, further assessment of the program by September 30, 2003, would provide limited useful information. As agreed with your offices, we are providing this letter summarizing program activity to date and plan no further assessment of the pilot program at this time. Scope and Methodology: To determine the number of Title II projects, including the number of projects expected to generate merchantable material and the number to be conducted in the pilot program, we reviewed Forest Service and BLM documents including lists and descriptions of projects; interviewed officials in all nine Forest Service regions and BLM's Oregon State Office; and interviewed cognizant headquarters officials in Forest Service and BLM. We conducted our work from January through March 2003 in accordance with generally accepted government auditing standards. Agency Comments: We requested comments on a draft of this letter from the Secretaries of Agriculture and of the Interior. In response, we received oral comments from the Forest Service's Director of Policy Analysis and BLM's Acting Group Manager for the Forest and Woodland Management Group, who generally concurred with the information presented in our letter. The BLM official also provided some technical corrections, which we incorporated as appropriate. We are sending copies of this letter to the Secretary of Agriculture and the Secretary of the Interior. The letter also is available on GAO's home page at http://www.gao.gov/. If you have questions about this letter or need further information, please contact me at (202) 512-3841, or David P. Bixler, Assistant Director, at (202) 512-7201. You may also reach us by email at hillbt@gao.gov or bixlerd@gao.gov. Other key contributors to this assignment were James Espinoza, Steve Gaty, and Diane Lund. Barry T. Hill Director, Natural Resources and Environment: Signed by Barry T. Hill: List of Congressional Committees: The Honorable Thad Cochran Chairman The Honorable Tom Harkin Ranking Minority Member Committee on Agriculture, Nutrition, and Forestry United States Senate: The Honorable Pete V. Domenici Chairman The Honorable Jeff Bingaman Ranking Minority Member Committee on Energy and Natural Resources United States Senate: The Honorable Bob Goodlatte Chairman The Honorable Charles W. Stenholm Ranking Minority Member Committee on Agriculture House of Representatives: The Honorable Richard W. Pombo Chairman The Honorable Nick J. Rahall, II Ranking Minority Member Committee on Resources House of Representatives: FOOTNOTES [1] Pub. L. No. 106-393, 114 Stat. 1607 (2000). [2] The act covers all National Forest System lands as well as certain BLM lands in Oregon. [3] Counties receiving less than $100,000 annually from National Forest System lands may spend up to 100 percent of the payment on these county services. [4] In fiscal year 2001, 15 percent of Title II projects generating merchantable material were to be conducted under the pilot program; in fiscal years 2002 and 2003, 25 percent of projects; and in fiscal years 2004-2006, 50 percent. [5] No Title II projects involving merchantable material were approved or undertaken in fiscal year 2001. GAO's Mission: The General Accounting Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. 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