A Titan of Logging Threatens to Topple [L.A. Times]

By Tim Reiterman
Times Staff Writer
February 21, 2005
REDCREST, Calif.

Whenever Pacific Lumber Co. planned to dispatch helicopters to log its nearby redwood groves, the company would phone Christine Rising at her vine-draped bungalow above the Eel River.

After finding someone to care for her horses, dogs, cats and pot-bellied pig, Rising, 51, would pack her clothes and head down the dirt road toward a Eureka hotel about an hour's drive away. Then for days or weeks, she could escape the beat of helicopter blades that she says wreak havoc with her surgically repaired left ear, causing nausea, dizziness and even blackouts.

For Pacific Lumber, paying Rising's hotel bills for a few years was a cost of doing business — a relatively inexpensive goodwill gesture by a company that could ill afford more enemies or more obstacles to harvesting its valuable Humboldt County timberlands.

But early last year, Rising says, she had to start fending for herself. Although Pacific Lumber says it will help her out with her medical expenses, it has stopped paying to relocate her.

For Rising, who lives on an $850-a-month government disability payment, the development was a heartless move by one of California's most powerful natural resource companies. But it also was one more sign that a company that has been a pillar of California's north coast economy for nearly a century and a half is in trouble.

A series of layoffs and mill closures culminated earlier this year with Pacific Lumber warning that it was on the brink of bankruptcy.
Company executives began negotiating with a state agency last week over 11 logging permits that they say are crucial to the firm's survival.
Catherine Kuhlman, executive director of the North Coast Regional Water Quality Control Board, said the final decision on the permits wouldn't be issued until later this week, after the public has had a chance to comment.

The demise of Pacific Lumber — with its own town and the world's largest privately owned groves of ancient redwoods — would strike Humboldt County like a 300-foot redwood toppling to the forest floor.

Pacific Lumber remains the biggest taxpayer and private employer, with friends and former employees in key places in county government and the state Capitol. The company supports charities and community affairs — and offers college scholarships to employees' children.
Since the early 1990s, Pacific Lumber has been at the center of one of the country's longest and most volatile environmental battles over the fate of some of the world's tallest trees and the wildlife they support.

To end the strife, six years ago, the state and federal governments made a $480-million deal for 7,500 acres of Pacific Lumber's oldest, grandest trees, creating the new Headwaters Preserve. The deal also required the firm to limit logging on its remaining 200,000 acres. But now the company contends that the terms are a huge financial burden and that it can't get enough logging permits to turn a profit.
"We're 140 years old … and we're about to go bankrupt because of overlapping and duplicative regulation," company President Robert Manne said in a recent interview.

Company officials warn that if they have to declare bankruptcy, monitoring and remedial work on its lands would be dramatically scaled back, to the detriment of wildlife and water quality. But state officials say that terms of the agreement would have to be followed no matter what.

Environmentalists and other critics argue that the company has only itself to blame for its difficulties. They point out that financier Charles Hurwitz, whose Texas-based Maxxam Corp. acquired Pacific Lumber in a contentious takeover in 1985, soon liquidated hundreds of millions of dollars in assets, including a welding division and a farming corporation.

"They have taken so much money out of the company and their debt is so high that without the logs … they are hurting," said Richard Wilson, who was former Gov. Pete Wilson's forestry chief when negotiations for the Headwaters deal were underway.

Under Hurwitz, Pacific doubled logging volumes, spawning years of costly protests by activists who blocked logging roads and perched in trees to prevent them from being cut. There have been hundreds of arrests, numerous injuries and one death.

Since the mid-1990s, a number of Pacific Lumber's neighbors have contended that excessive logging along steep slopes has triggered landslides, filled streams with sediment and flooded their property.

Before the 1999 Headwaters deal, the California Department of Forestry suspended the company's license for repeated forest rules violations.
"When Maxxam took over, they waved a red flag at the bull, and said we would do it our way," said opponent Woody Murphy, whose family had owned Pacific Lumber for decades before the takeover.

The company "is a mess, and whether it's the endgame, I would not be surprised," said lawyer Bill Bertain, who tried to block the Maxxam takeover and has sued Pacific Lumber over damage to residents' homes, orchards and water supplies. "But it's a sad thing. A lot of my buddies are on edge, worried about working."

In recent years, Pacific Lumber has closed three mills and cut its workforce of 1,700 almost in half. Company officials said they now want to sell employees and retirees the 275 homes Pacific Lumber owns in the tidy mill town of Scotia.

Last year, in a blow to its reputation, the company poured more than $200,000 into a losing effort to recall the county district attorney. The prosecutor had filed a $250-million civil fraud suit against the company over the Headwaters deal, alleging it had submitted false data on landslide dangers in logging areas. The company denies the allegation, and the case is pending.

In addition to saving some of the most majestic trees, the Headwaters deal sought to protect salmon that spawn in the forest's streams, northern spotted owls that nest in its trees and 15 other species.

Despite misgivings by some company officials, Pacific Lumber hoped the pact would finally bring peace — and steady profits. But executives now say the company has been losing $28 million to $98 million a year since 1999 — largely because of the cost of complying with the Headwaters deal, difficulties in obtaining logging permits and millions of dollars in legal expenses.

Pacific Lumber said it has spent about $65 million complying with the habitat conservation plan and has expanded its staff of scientists from eight to 52.
Much of the company's environmental protection effort has been devoted to two adjoining watersheds outside Eureka — Freshwater Creek and Elk River — where residents say that sediment has washed off heavily logged slopes, choking streams and causing frequent flooding.
Jerry Gess, a retired mechanic, lives behind what some people jokingly call "The Great Wall of Freshwater." He built the 6-foot high cinderblock structure around his house in 2003 after the creek came within inches of his front door. The house was built on high ground by his grandparents, but since Pacific Lumber increased upstream logging, he said, the creek filled with silt, not the gravel that spawning salmon need. Swimming holes, he said, became just a memory.

"I'm not totally against Pacific Lumber," said Gess, who joined a lawsuit against the company. "But Charles Hurwitz has one thing on his mind: to make money at any cost. We're all caught in this thing."

The company maintains that most downstream sediment is from "legacy logging" several years ago or longer. And its scientists say silting has declined since the Headwaters agreement, despite continuing resident complaints and numerous forest rules violations.
On a recent tour, Jeff Barrett, head of Pacific Lumber's science division, pointed out road repairs and new logging practices that the company says have helped prevent erosion and preserve wildlife. "There is a beautiful clear-cut with slash," he said, pointing to a stand of logged trees. "The birds have perches.''

Pacific Lumber wants to do more logging in the area and says it has spent $2 million to winterize dirt roads to minimize washouts. But the North Coast Regional Water Quality Control Board has been holding up the permits, because officials feared the company's logging could dump more sediment in waterways.
Last week, the company and the board held marathon negotiations over 11 proposed logging areas that the company says hold 38% of its projected harvest for the first half of this year.

"I think we can make a deal that will keep Pacific in business and protect the residents," Kuhlman, the board's director, said Friday. "But the devil's in the details."

Chuck Center, Pacific Lumber's legislative director, said there was a potential agreement for some of the permits, but that it was not clear where that would leave the company's finances.

The permit holdup, coming on top of Pacific Lumber's warnings of insolvency, has not helped the company's already low financial ratings or its ability to make payments on bonds used to refinance Maxxam's $900-million purchase. It still owes $750 million.

Despite the bankruptcy warnings, Manne, who took over as Pacific Lumber's president three years ago, says he believes it is strong enough to survive. "The company is well-managed, well-run and we have an experienced team," he said. "We hope we can get it back to the level of respect it deserves."
Last summer, Pacific Lumber opened a high-tech $30-million sawmill, which cuts small logs up to 2 feet in diameter. It was the company's way of adjusting to the increasing scarcity of big trees in a forest logged for more than a century.

Meanwhile, officials said they were trying to raise $100 million to acquire more timberland — and are willing to sell a piece of the company.
Dennis Wood, vice president of operations, said the timber shortage was forcing the company to run two shifts per day — instead of three — at its mills. "We're cutting faster than we can bring logs in," he said.

Rafael Lopez, one of 38 mill workers laid off Jan. 17 and later rehired, worries about putting his three children through college and losing his company housing. "If we don't get more logs, next time it will be a lot more than 38 of us," he said.

Maxxam Machinations Demand Local Solutions

My Word by Michael Twombly
Times Standard - February 8, 2005

The Los Angeles Times reported last week on a closed-door meeting between Charles Hurwitz, CEO of Maxxam (parent of Pacific Lumber) and Governor Arnold Schwarzenegger. They conferred on the likelihood of Pacific Lumber's impending bankruptcy. The meeting included Undersecretary of CAL-EPA James Branham, formerly of PL and “broker of the Headwaters deal.� The Times editorialized “Californians may get to see up close how well or ill the revolving door of public service/private industry serves the public's purpose.�

Hurwitz, through his myriads of shell companies, took many hundreds of millions of dollars from this once proud, sustainable and responsible company by mortgaging PL's vast timber assets. He intentionally burdened PL and its spin offs with so much debt that they cannot legally cut enough timber to pay off the approximately $100 million in annual interest on the debt while still covering operating costs, Rather than make up for this shortfall from the hundreds of millions he has taken from PL, Hurwitz has found it eminently more profitable and expedient to threaten PL's bankruptcy and the termination of hundreds of its loyal employees.Â

His strategy is win/win; if the North Coast Water Quality Control Board holds to the protections of the Headwater's agreement, PL goes bankrupt and Hurwitz walks away with his hundreds of millions (and probably sues the State). If the Water Quality Control Board gives in and allows the Eel and Freshwater cuts, Hurwitz takes the trees and prepares for bankruptcy a year later. Win/Win.What is clear is that CEO Hurwitz needs to keep our PL timber workers and their families anxiously advocating for Maxxam's interests while he engineers PL's bankruptcy and their termination.           Â
This paper chose to poke fun at �La La Land� in a subsequent editorial, rather than ring the Pacific Lumber bankruptcy alarm bell.  But more than 50 citizens, land-owners and even former PL employees spoke before the Board of Supervisors last Tuesday, clearly and eloquently detailing Maxxam's bankruptcy strategy. They recounted the number of companies which have been purchased by Maxxam, only to be looted into bankruptcy, their pension plans emptied, their assets mortgaged, and finally their employees terminated. They warned the Board that Hurwitz, master of junk bond piracy, had already enriched himself by borrowing on PL's timber assets and then moving the money to Maxxam, anticipating PL's bankruptcy.

It is heartening to see this maturing political awareness of Humboldt citizens just as so many saw through Maxxam's failed attempt to buy the recall of District Attorney Paul Gallegos in 2004. Charles Hurwitz believes that he will be able to obfuscate, frighten, misdirect and divide our community and keep his stolen profits, leaving Pacific Lumber in financial shambles. He believes that Pacific Lumber's past reputation, loyal workers and former positive influence in Humboldt County will cover the stink of his strategy, coupled with his assumption that no one will be able to understand and uncover his financial manipulation and the money trail leading directly to his pockets.

I believe we need to join together to defeat Maxxam's strategy and to make Humboldt County's forests and timber industry permanently sustainable.          Â

To do this, we may need to accept the difficult decision to slow PL’s rate of cutting and decrease its workforce to sustainable levels, despite bondholder's demands. Humboldt County must look clearly at the long-term future of Pacific Lumber and take direct control of our collective destinies. One promising option would be to allocate Headwaters Fund money to determine if and how we and PL's own employees could purchase PL through an Employee Stock Ownership Plan (ESOP). Another potential worker retraining solution under consideration is nurturing forest and watershed restoration industries in the County.          Â

Our community is coming to better understand what Maxxam has planned for Pacific Lumber and its workers. We are coming to see that we are all in this together against Maxxam, and that, if we are to survive Hurwitz’ PL bankruptcy strategy, we must take control of Pacific Lumber’s future today, because it is tied to our future.

If and when Hurwitz declares PL’s bankruptcy, this community must protect its workers by “piercing the corporate veilâ€? of Pacific Lumber - by going directly after Maxxam and personally after CEO Charles Hurwitz. The District Attorney’s lawsuit is one avenue which, if successful, could result in Maxxam being legally forced to assume the liability for the harms it has caused the County, the land, the water and PL workers. Other legal actions may have to be taken against Maxxam and Hurwitz if and when bondholders line up to clear-cut Humboldt County forests in payment for Hurwitz’ billion-dollar borrowing.
One thing is for sure, as evidenced by testimony before the Board of Supervisors: the people of Humboldt County are asleep no longer. Are we too late to save PL and our timber industry from Hurwitz? Will we be able come together to defend PL and Humboldt County from Maxxam's “final solution?� Our future as a community and as an economy depends on us finding an alternative (and local) solution.

Michael Twombly is a founder of Local Solutions PAC (Political Action Committee) (http://www.localsolutions.or).
He lives and works in the redwood forests of Bayside.