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Criterion 7 Indicator 58
Rationale
The Extent to Which Investment and Taxation Policies and the Regulatory Environment Recognize the Long-Term Nature of Investments in Forests, and the Extent to Which These Policies and Regulations Permit Capital to Flow in and Out of the Forest Sector in Response to Market Signals, Non-Market Economic Valuations, and Public Policy Decisions, in Order to Meet Long-Term Demands for Forest Products and Services
 
In order for sustainable forest management to occur, investments in forests must be held for extremely long periods of time, compared to other types of investments. If investment, taxation, and regulatory policies do not provide stability, investors will be reluctant to commit the capital needed for sustainable forest management.

Evaluation
Economic framework for non-federal forest lands — investment and taxation policies
 
Oregon has three tax policies that specifically recognize the long-term nature of timber investments. Under the forest land statutes, forest landowners can pay property taxes on bare forestland values at 100% of statutory values, or defer paying property taxes on 80% of the lands value and pay a percent of harvest value when timber on these lands is harvested. This 80% deferred land tax option lowers the forest landowner’s annual property tax burden, which is particularly important to some small family forestland owners.
 
Small family forestland owners can enroll in another optional tax program, which calculates the annual property tax burden by capitalizing the landowner’s estimated net income from timber over the entire rotation length. Landowners who intensively manage their lands and grow more volume than is assumed in the model are able to lower their effective land assessment rate.
 
Oregon also provides an income tax credit of up to 30 percent for the landowner’s cost of converting under-productive forest land to timber use and planting it with commercial forest species. This credit has been responsible for getting old brush lands and marginal pasture lands back into producing forests for Oregon’s future.
 
Federal tax policies have a special estate tax provision that allows gifts of up to $1.2 million per person when forest lands and timber are involved. This policy can reduce estate taxes on forest land; otherwise, people who inherit forest land might harvest the timber prematurely in order to pay the estate taxes. There is also a federal tax credit of 10 percent for reforestation costs, and capital gains treatment is allowed for timber harvests.
 
Economic framework for non-federal forest lands — regulatory environment
 
People value forest lands for more than just timber. These other values include recreation, scenic qualities, and clean water. Society has increased its demands for these other forest values in recent years. The forest products industry and non-industrial landowners have been active partners as the state of Oregon has made changes to the Forest Practices Act, Oregon’s land use planning laws, and other environmental laws governing forestry, in order to meet the public’s demands for other forest values. It is still unknown whether or not the pace of legal change has caused capital to flow away from forest investments, or caused investors to demand higher rates of return from forestry investments.
 
Economic framework for federally managed forests — investment and taxation policies
 
In order for sustainable forest management to occur, capital investments must be made in forests. For federally managed forests, the necessary money has come from the nation’s treasury. The amount of money has been based, both directly and indirectly, on funds produced by the sale of timber and other resources. As the level of timber harvest is reduced on federal forests in order to meet wildlife and environmental goals, the amount of funds available for reinvestment in forest management has also been reduced.
 
This source of funding will be problematic in the future. One alternative is to get increased funding from the general treasury; however, these requests must compete with many other public needs. Another alternative, investment from the private sector, is unlikely without significant guarantees that investors will recoup their investment with profit.