Feb 07, 2022News
Just like families, companies need certainty when making big spending decisions. And banks will loan us money only if they can be assured it will be paid back and the property they’re lending against will cover the value.
Buried in the province’s new approach to forestry is a worrying approach that is removing this very necessary stability for forestry firms.
Let’s say you buy a suburban Vancouver-area lot for $1.2 million – about the average for Metro Vancouver in the assessments that came out in January, 2022. You have $200,000 for a down-payment, so end up with a $1 million mortgage. You plan to build a house on the lot, and hire an architect, engineer, landscape designer, and pay the city fees to apply for a development permit. You’ve invested maybe $100,000 in all that – you don’t have the money on hand, so roll it into the mortgage, so that’s now $1.1 million on a $1.2 million property.
But then the province decides it wants to make the park next to your house larger, and needs to take some of your property to do that. They’re going to take 20 per cent of your lot outright. They also put another 20 per cent on a deferral for two years, meaning you’re not allowed to do anything with it and they may or may not take it in the future. Suddenly, your lot is worth $240,000 less and you’re not sure about another $240,000. But, you owe the bank $1.1 million on a lot that may now be worth only $720,000.
Then, the province changes the rules so it doesn’t have to compensate you for the full amount of the land it’s taken outright, and there’s no word on what might happen with the other $240,000 worth of property. That’s just on hold for two years. Plus, that $100,000 you’ve invested to plan your project is wasted, and you’ll have to redo all that work.
And then the bank calls.
That’s a gross simplification, but is essentially what the province has done to BC forest companies. Bill 28 (Forest Amendment Act: 2021) not only removes large swaths of land from forest tenures, but the government has indicated they plan to change the rules to significantly reduce the compensation the companies which own those tenures will receive. In another action, separate but related, the province has deferred forestry on another 2.6 million hectares of land. A deferral removes that land from our ‘property’ for two years without any compensation, leaving us unsure of what might happen with it in the future.
Forest tenures are 25-year contracts between the province and forestry companies on an area of land – we pay for the license, and in return get the right to harvest trees under the province’s existing (and strict) rules. We have to hire registered professional foresters and engineers to plan the work, ensure there is no impact on waterways, consult with local First Nations and communities, replant new trees appropriate for the area. Just like it is with building a home, the rules have evolved over the years to ensure the work is done responsibly.
And, if the province should decide to remove some of the land we are compensated for that lost value. That’s fair, at least on paper.
We’ve invested $52 million in our mills over the last few years, modernizing their operations to continue maximizing value we get from each timber. We made that investment from our profits and with funds borrowed from banks based on our understanding of the rules – how much land we’d have access to, the rules for how we need to operate on that land, and how we’d be compensated if any of that land is removed from our tenures. A vertically-integrated company, Teal Jones has both woods operations and mills, using the timber from our woods operations to supply our mills with their raw materials. A value-added manufacturer, we do not export any raw logs, but mill logs into higher-value products here in BC.
Changing the compensation structure when removing huge swaths of this land under contract puts current and future investments in our mills at real risk.
We have more investments planned, but are now re-running the numbers with this information to see what’s doable, whether those plans make sense in this new framework. And, why would banks agree to help finance these investments when it’s clear they can’t depend on the rules remaining true and reliable?
The government is well within its rights to set forest policy, including the creation of protected areas. We all agree generous areas of old growth forest land should be preserved, for numerous values. And, it is – well over half of BC’s old growth forests are protected, through a number of mechanisms. Our woods operations are often surrounded by parks of pristine watersheds, while Old Growth Management areas protect smaller areas of interest within the tree farm licenses themselves.
With so much land already protected we can afford to log a modest amount of old growth each year, with the same thoughtful approach with a set of rules and experts we expect someone building a new house to undertake. A balanced approach supporting jobs and the environment both.
Our forest lands have been reduced significantly by past efforts to create new parks over the last 30 years. Unfortunately, this isn’t’ the first time the province tried to do that without following its own rules for compensation on the expropriation. In fact, dodging compensation appears to be the norm.
In one previous case, in the 1990s the province took land back in the Pitt Lake area for part of what is now Pinecone Burke Provincial Park, but refused to follow its own compensation rules. We offered a number of solutions to avoid costly court proceedings, including swapping for timber harvest areas somewhere else, but were rebuffed at every turn. the courts ended up agreeing with us and awarded a larger financial award than what we were willing to settle for. This was a tremendous waste of taxpayer money and 20 years of court proceedings that could have been easily avoided.
In a similar situation the provincial government passed the Forest Revitalization Act in 2003, allowing them to take back 20 per cent of the tenures of forest companies. Again, the province didn’t follow their own rules, we sued for proper compensation and ultimately won. Another costly litigation over years that could have been avoided.
The courts generally don’t look kindly on a land-owner or government changing the terms of a contract to suit them better after the fact. But, it took many years of court proceedings to get there.
That uncertainty and repeated failure of BC governments to follow their own rules unless ordered to by the courts was in part what compelled Teal Jones to invest in mills in the US, to spread our risk around and invest in jurisdictions that have proven more reliable and predictable.
The province’s approach will no doubt attract lawsuits. It is also making BC an expensive, unreliable place to invest, which will serve to drive companies to put their focus and funds elsewhere.
Whether a family or a company, when you do the math on an investment the rules and our confidence in those rules matter a great deal.