Spurred by a land use plan intended to remove Pacific Lumber Company from bankruptcy, the Humboldt County Board of Supervisors is moving toward adopting policies that would limit residential development on land zoned for timber production.

In early October, the Board of Supervisors adopted a 45-day moratorium on residential construction on lands designated timber production zone (TPZ). Two weeks later, the board directed the county Planning Commission to consider drafting an ordinance that would require a conditional use permit for a house on TPZ land. The board also directed the Planning Commission to consider, during the general plan update process, establishing separate TPZ categories for industrial and non-industrial timberlands.

The board's actions have sparked a political firestorm in a county where land use compromises are elusive. Owners of TPZ land say the county is taking away a property right they have enjoyed for years and harming the very timber industry the county says it wants to protect. Environmentalists and slow-growth advocates, however, say the county is taking proper steps to ensure the heavily forested hillsides do not get carved up into large-lot housing developments.

At the center of the controversy is Pacific Lumber Company (Palco). In 1986, Texas junk bond financier Charles Hurwitz's holding company, Maxxam Inc., acquired Palco, a pillar of the Humboldt County business community known for its responsible forestry practices. Under Maxxam, Palco rapidly increased timber harvesting and, in 1998, essentially forced the State of California to buy the 7,500-acre Headwaters Forest of old growth redwoods for $480 million. The Headwaters deal also placed much of Palco's 220,000 acres into a habitat conservation plan. The company has chafed at the HCP restrictions ever since and early this year declared bankruptcy, blaming the environmental regulations.

In early October, Palco presented to a federal bankruptcy court in Corpus Christi, Texas, a plan for getting out of debt: It would sell 21,800 acres of TPZ lands east of Fortuna as 160-acre "kingdoms" for a high-end residential development called Redwood Ranch. Pacific Lumber said it could get $5 million apiece for the parcels. Palco's plan also calls for selling 6,600 acres of old growth forest to conservation groups or public entities for $400 million.

The company's creditors have questioned the plan, especially the property values put forth by Palco. On October 23, U.S. Bankruptcy Court Judge Richard Schmidt ordered the company and its creditors to submit to mediation and return within 30 days.

Only days after the Palco bankruptcy plan became public, the Board of Supervisors voted 4-1 for an urgency ordinance imposing the 45-day moratorium, which could be extended for a total of two years. Supervisors, who have been in conflicts with Palco almost continuously since the Maxxam takeover, said they had to take action to preserve the status quo and let the bankruptcy court know how dicey the Redwood Ranch plan is.

The move infuriated Palco. "There is no urgency or emergency, for no project, plan or proposal to erect or construct any building or to process any building permit for TPZ zoned lands exists by or on behalf of Palco, and no such plan or project will be undertaken for many years after Palco's emergence from Chapter 11 reorganization, currently projected for 2008," wrote Frank Bacik, the company's vice president and general counsel.

Because the county has permitted construction of one house on a TPZ parcel by right, other owners of TPZ land joined the opposition. "It's taking a very basic property right, which is the right to build a house on your property," said Steve Horner, general manager of Barnum Timber, which owns about 36,000 mostly TPZ acres.

The market for Douglas Fir is poor, Horner explained. So, like other timber companies, Barnum sells off parcels for development to cover costs until timber harvesting is profitable again. But if the county prevents the construction of a house on those parcels, Horner said, "We're beginning to wonder whether anybody would pay anything to own these parcels."

Horner and other landowners argue that the county is using the Pacific Lumber bankruptcy plan to shut down development. "They are using that bogeyman to restrict all the development on these rural lands," said Horner, who would like to negotiate a compromise. "We all have the same goal. No one says they want to cut down the forest and pave over the hillsides."

Humboldt County Supervisor Jill Geist said housing construction on timberlands has been a matter of concern since the county started updating its general plan seven years ago. "All the [Palco] action did was place a spotlight in this chasm we already knew existed," Geist said.  

Sharon Duggan, co-author of Guide to Forest Practice Act and Related Laws and an attorney who has battled Palco, defended the Board of Supervisors.

"If they [Palco] are allowed to do a conversion of 21,000 acres, it will open the floodgates," said Duggan, who represents a creditors committee in the bankruptcy proceeding. "We have the conversion train moving north from Sonoma County to Mendocino County to Humboldt County. This is a way for them to try to make some money."

The TPZ works for timberlands the way the Williamson Act does for farmland. In exchange for managing the timber resource, property owners in the TPZ receive property tax breaks. And, because they pay a yield tax only when they actually harvest trees, landowners who never log their land can keep taxes artificially low apparently forever. This tax policy is extremely beneficial to people who want to build a house in the woods, but it does not necessarily preserve the resource, said Bill Sise, a professor of forest management at Humboldt State University.

Sise is skeptical of Palco's bankruptcy plan and of landowners protesting the emerging county policy.

"There are a bunch of realtors who think they are going to make a whole lot of money by selling houses on 160-acre ‘kingdoms,'" Sise said. "Nobody is stupid enough to pay $5 million for 160 acres of second-growth timber with a road going through it that's going to carry logging trucks forever."

Instead of adopting new land use regulations, Sise recommends the county change its tax policy. If Pacific Lumber says its land is worth $60,000 an acre, and if second growth timber is worth about half that amount, then the county should levy an ad valorem tax on the difference. That approach would change the business plans of many companies, Sise said.

Geist conceded the current tax policy is a "failure." That is why she has recommended breaking the TPZ parcels into industrial and non-industrial categories. The latter would most likely contain smaller parcels with a house, and would not receive the same tax benefits as a lot that contains only production timber.

Humboldt County Community Development Director Kirk Girard noted that under state TPZ law, timber is supposed to be the primary use, while a residential use must remain secondary. If residential becomes the primary use, there could be tax implications, he said. "I think we're begging this question for other counties," Girard said.

For now, the county appears headed toward new land use regulation. In the meantime, it could learn the fate of Palco's Redwood Ranch plan in bankruptcy court by the end of November.

Humboldt County Supervisor Jill Geist, (707) 476-2395.
Steve Horner, general manager Barnum Timber, (707) 442-1761.
Sharon Duggan, attorney for Pacific Lumber creditors, (510) 271-0825.
Bill Sise, Humboldt State University Department of Forestry and Watershed Management, (707) 826-3925.
Bankruptcy case: In re: Scotia Development LLC, No. 07-20027.