Market Value & "Decoupling"

This image was taken from the cover page of an Oregon Consensus report about "decoupling". If you click on the image, a hyperlink will take you to the report.

We were unable to find out the cost of this report informally, so we filed a formal Freedom of Information -- Public Records request to force the Department of State Lands into revealing how much money they were spending on consultants. The answer: this report cost $132,000.

Market Value and "Decoupling"

Determining the Elliott State Forest's Market Value

This page looks at the market value of the Elliott State Forest to find an appropriate sales price. Determining the real market value is necessary to arrive at a fair price to transfer the Elliott State Forest from the School Trust to OSU.

What is "Decoupling"?

"Decoupling" is DSL/OSU jargon for selling the Elliott State Forest from the School Trust to OSU or another entity. Alternatively, if you want to wade through academic prose, the Oregon Consensus report (described in the sidebar) defines "decoupling" as:

"Decoupling” is generally intended to mean releasing all or a portion of Elliott State Forest from its asset connection and revenue obligations to the School Fund. Page 5.

In connection with the Land Board’s direction, the 2017 Oregon Legislature approved $100 million in state “certificate of participation” bonds ... to buy down the state’s obligation to the School Fund—partial payment for Elliott State Forest’s 2016 appraised value of $220.8 million. Page 6.

Land Board assumptions are as follows: Common School Fund responsibility. Honoring the state’s fiscal duty to the School Fund remains a primary driver and outcome. DSL has indicated that, at present, managing Elliott State Forest as a timber land asset costs the state more than it yields in revenue to the School Fund. The amount of decoupling-based revenue needed to address School Fund fiscal responsibilities and the source of that revenue need resolution. Given the Land Board's expressed level of urgency and desire for certainty in an outcome, reappraising the forest may not promote expediency. That said, the 2016 Elliott State Forest appraised value has a shelf life, and given the Land Board’s sense of urgency, the likelihood of this amount of funding satisfying the Land Board’s fiduciary duty to the School Fund is highest if presented in the very near term. Page 14.

So the good news is the State Land Board acknowledges it must pay the School Fund before it can give away or sell the Elliott State Forest. The bad news is the State Land Board said the Elliott State Forest was only worth $221 million in 2016, something that was absurdly low at the time.

This image comes from a Cascade Policy Institute article, "Oregon Land Board Low-Balls Elliott Timber at $220.8 Million," July 27, 2016.

Founded in 1991, Cascade Policy Institute is a nonprofit, nonpartisan public policy research and educational organization that focuses on state and local issues in Oregon.

Land Board Value of $220.8 million in 2016

The Department of State Lands valued the Elliott State Forest at $220.8 million in July 2016. Professional foresters knew this substantially undervalued what the Elliott State Forest would sell for in an arm's-length transaction on the open market.

For example, consider the July 27, 2016 Cascade Policy Institute titled, Oregon Land Board Low-Balls Elliott Timber at $220.8 Million:

Today the Oregon Department of State Lands announced the “fair market value” of 82,000 acres of Common School Trust Lands within the Elliott State Forest as $220.8 million. ...

At a public meeting held in Salem, the Director of the Department, Jim Paul, reiterated that anyone hoping to acquire the 82,000 acres must offer exactly $220.8 million. Any offer above that will be considered “outside the protocol” and deemed “non-responsive.”

Today’s announcement was the latest step in the Land Board’s plan to dispose of the Elliott property in a non-competitive bid process. This prompted Cascade Policy Institute President John A. Charles, Jr. to make the following statement:

“The Land Board has invented a ‘fair market’ value of the Elliott timberland without allowing a market to actually function. The price investors are willing to pay might be the $262 million appraisal, or it could be multiples of that number. Unfortunately, we’ll never know because the Land Board is refusing to take competitive bids. Clearly this is a breach of fiduciary trust. Public school students, teachers and parents deserve to get top dollar in this once-in-a-lifetime sale of a public asset.”

Nonetheless, it appears both OSU and the State Lands Board intend to move forward with the obviously obsolete $221 million figure from 2016. For example, the Elliott State Forest Briefing prepared by Oregon State University for its January 29, 2021 Board of Trustees meeting says:

The state must also allocate funds to the Common School Fund to free the land from restrictions resulting from the Common School Fund’s beneficial ownership. The State Land Board has determined the fair market value of the ESRF is $221M and has already sold $100M in Certificates of Participation to pay a portion of that amount. The state must secure the remaining $121M.

Value changes from 2016 to 2020

As a useful mental exercise, this section assumes the Elliott State Forest was worth $220.8 million in July 2016, and then it considers what the forest would be worth in November 2020. Two major factors changed since July 2016: volume growth and market prices. Each factor is worth considering.

Volume Growth

Each year the Elliott grows 60 million board feet of high quality timber. In November 2020, as this is being written, Oregon mills are paying $800/thousand board feet for this sort of timber. So the value to Oregon's economy of the growth since 2016 is 4 years x 60,000m board feet x $800/m or $192 million. Landowners don't get all this value, part of it goes to cutting, hauling and other costs. At least 50 percent of this value should flow through to the landowner, so the volume growth over the last four years should be $192M x 50% or $96 million.

Market Prices

Log prices in July 2016: Fortunately, the Oregon Department of Forestry (ODF) maintains a database of historical pond value records. This source shows Douglas fir log prices were around $675/M in the Coos, Douglas County and Roseburg market in Second Quarter, 2016.
Log prices in 2020: ODF stopped publishing log prices in 2017, but current log prices are available from Lauren Grand, OSU Extension Forestry & Natural Resources, "Log & non-timber forest product prices & trends", November 4, 2020. She says:

"Things got hot and heavy this summer with prices increasing to the $900/mbf range... Douglas-fir prices are currently sitting in the high $700 – low $800/mbf range. This is lower than the prices you saw last month, because more wood is headed to the mills."

The bulk of the Elliott Forest's value is in it's logs, so that implies the $220.8 million should be multiplied by $800M/$675M, or $262 million.

Combined adjustment from 2016 to 2020

After adjusting for both Volume Growth and Market Prices, the Elliott State Forest's implied value in November 2020 is: $96 + $262 or $358 million.

The point of the mental exercise in this section isn't to suggest the Elliott State Forest is worth $358 million in 2020 -- we're convinced it's worth three or four times that much. Instead, the point was to demonstrate that 2016 values were far lower than 2020 values.

What is the Elliott State Forest worth today?

Professional foresters use the same three methods to appraise timberland that are used to appraise other real estate. A thorough discussion of timberland appraisal theory can be found at The National Timber Tax website. The three methods are:

The sales comparison method looks at what similar timberland has sold for.
The cost approach method adds up the values of individual components, such as timber, land, roads, and so on.
The income capitalization method looks at future revenue streams and discounts them back to present day value.

None of these methods require rocket science, and simple calculations and comparisons will quickly yield fairly accurate approximate values.

Sales Comparison

Sales of large timberland tracts are infrequent, and often they are sold privately without publicly reporting the sale price. This can make the sales comparison method for timberland more difficult than for something like a residential home. Later in this page, we review a comparable timberland sale: the OSU College of Forestry sold the 1,400 acres of timberland given to them by Kaye Richardson for $23.7 million dollars, so this gift was sold for $16,900 per acre. For quick comparison purposes, the Richardson sale price would imply the Elliott State Forest is worth 82,000 acres x 16,900/acre or $1,39 billion dollars. This comparable sale is discussed in more detail further down this page.

Cost approach

The 2016 professional timber cruise (paid for by the Department of State Lands) said the Elliott State Forest had 3.2 billion board feet of timber. Since the forest grows 60 million board feet a year, the forest has about 3.4 billion board feet of timber in 2020. As of November 2020, Douglas fir logs similar to those in the Elliott State Forest were selling for $800 per thousand board feet when delivered to Oregon sawmills, so the trees are worth $2.8 billion gross. The net value is less because of the cost of logging, hauling, administration and so on, but a reasonable net value to the landowner would be at least 50 percent of the gross. This suggests the trees on the Elliott State Forest are worth $1.4 billion dollars today. The entire forest’s value would be substantially higher to account for the land, its 550 miles of rocked access roads, and other improvements.

Income capitalization

The Department of State Lands has been losing money each year, so the income capitalization method suggests the Elliott State Forest has a negative value. This, of course, makes no sense. How is it possible to lose money while managing over 90,000 acres of prime, well stocked and mature Douglas Fir timberland in Oregon? No one else would have trouble making lots of money on this sort of asset. For example, over half the Elliott State Forest is surrounded by industrial forest land owned by companies such as Weyerhaeuser, Georgia-Pacific, Lone Rock, Plum Creek, Menasha, and Roseburg Forest Products These companies practice responsible forestry, and they continue to harvest trees in a profitable and sustainable manner.

There is only one way this makes sense: losing money is a deliberate political strategy that flows directly from the decision not to harvest trees. Because the forest has been losing money, we expect the Department of State Lands will once again claim the forest is worth very little. This would be the moral equivalent of a shopper who breaks merchandise and takes it to the checkout counter saying: "This is broken, will you sell it to me at a discount?"

This photo shows Ward Richardson and his daughter, Kaye Richardson. They decided to gift their 1,400 acres of timber land to the OSU College of Forestry.

The Fall 1993 Focus on Forestry, a College of Forestry publication. This cover shows the OSU Valley Library card catalog numbers for the issue, making it an official record of OSU. If you would like to read the article, just click on the picture above.

Richardson Hall was dedicated in 1999, and it houses many College of Forestry offices and laboratories. It was largely paid for by selling the Richardson's timber land to Rosboro Lumber in Eugene for $23.8 million.

A Comparable Sale: The Richardson timberland

The lead article in the Fall 1993 Focus on Forestry, which is an OSU College of Forestry publication, is titled "The Gift of a Forest." It describes how Ward and Kaye Richardson lived most of their life on a 1,400 acre tree farm near Fall City and decided to give their property to the College of Forestry: after their death:

Ward Richardson, a Salem grocer, started buying cut over parcels of timber land during the Great Depression. Early lumbermen had logged off the more accessible reaches of the rich Coast Range forest and then abandoned the land for delinquent taxes. Richardson bought first one piece, then another, paying very little for land that was then nearly worthless.

In the early 1930s Ward Richardson moved his family ... out of Salem and onto their tree farm. It was then what you might call a stump farm, and they lived -- literally -- in a log cabin.

Kaye Richardson passed away in 1992, and her last will and testament gave her 1,400 acres of second-growth timberland to the OSU College of Forestry. At her death, this tree farm was valued at $13.3 million. Within a few years, the College of Forestry decided to sell the tree farm, and Rosboro Lumber in Eugene had the high bid of $23.8 million. The College of Forestry used most of the cash to build Richardson Hall which houses offices and laboratories, but part of the funds were used to establish three permanent faculty positions called the "Richardson chairs."

This sale makes an excellent comparable to understand the value of the Elliott State Forest:

Both properties had relatively little harvestable timber in the 1930s. The Richardson property had essentially no timber because it had recently been clear cut by people who stopped paying property taxes on the bare land, and the Elliott had relatively little harvestable timber because of the catastrophic forest fires in 1879, and also because it had few roads. Because the Elliott State Forest had roughly a fifty-year head start on growing second-growth timber, it likely had a higher timber volume per acre in 1993 than the Richardson tree farm.
Both properties lie in Oregon's coast range and have roughly similar rainfall and soil productivity, though foresters we've talked to would prefer the Elliott State Forest land for growing timber.
Both properties were actively managed for growing and harvesting timber from the 1930s through the 1992.
In the mid-1990s, the 1,400 acres of Richardson timberland sold for $23.7 million dollars, or $16,900 per acre. So this implies the 82,000 acres of School Trust Land in the Elliott State Forest were worth at least 82,000 acres x 16,900/acre or $1,39 billion dollars in the mid-1990s. Since that time, the volume of timber in the Elliott State Forest has more than doubled, and the price of logs has risen as well.

We wanted to learn more about the Richardson property sale, so the Oregon Websites and Watersheds Project filed a public records request with Oregon State University. Specifically, we asked for records that would help value the Richardson land sale. We wrote:

Was there a timber cruise of the property before the sale? If not, are there similar documents, such as appraisals, that would help value the property around the time of the sale?
Was a sale prospectus sent out to potential buyers? If not, are there similar documents that helped announce the sale.
Public records requests are always tricky because the public doesn't know what records are available, and the government doesn't always know why the records are needed. Along these lines, we're hoping someone at the College of Forestry will read this request, understand what we're trying to do, and send relevant documents.

Three weeks later we received this formal reply from Oregon State University:

This formal letter from Oregon State University says no one from the College of Forestry has any information about timber cruises, sales prospectuses or other records that would help value the Richardson land sale in the late 1990s. This letter is obviously inaccurate: of course there are faculty in the College of Forestry who have information about the Richardson sale: it was a huge source of funds for the College, and the College's forestry faculty would have been intimately involved in planning, coordinating, and observing the sale process. Similarly, a simple search of the OSU Valley Library turned up the Fall 1993 Focus on Forestry publication that described the location of the property, its condition in the 1930s, and how it was managed between 1930 and the early 1990s -- all facts directly relevant to our Public Records request.

So why would the College of Forestry deliberately lie about the records OSU has? That's a good question, and we won't attempt to answer it. Instead, we will say this is yet another example of how OSU has been secretive to the point of dishonesty, and is the topic of the Secrecy and Bias page of this website.

Overall conclusion

Quick but roughly accurate methods of valuing the Elliott State Forest show it is worth somewhere in the neighborhood of $1.2 to 1.5 billion dollars today in an arms-length open market transaction. Nonetheless, as documented above, it appears both OSU and the State Lands Board intend to move forward with the obviously obsolete $220.8 million figure from 2016.

If the Elliott State Forest is going to be "decoupled" from the School Fund in a legal and honorable manner, it will cost a lot more money than anyone in the Department of State Lands or OSU has suggested so far. It just isn't fair for these people -- who have a legal fiduciary responsibility -- to steal the Elliott State Forest from the School Trust for around 25 cents on the dollar.

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