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October 1999


On this page:
Texas Timber Grows Up
From our Readers
From the Comptroller: Setting a good example
Comptroller News

On Page 2:
Sharing the bull Market
Higher Education Fund gets more options
Voters to decide on constitutional amendments
The Lone Star 5
Countdown 2000

Texas stats -- Fiscal and economic data



East Texas supplies increasing amounts of lumber
Texas Timber Grows Up

The Texas timber industry owes a debt to the spotted owl.

Protection of the endangered bird slowed timber production in the Pacific Northwest in the 1990s, shifting much demand for wood to the Southern forest. In turn, timber produced in East Texas, the western edge of the great forest that once swept from the Eastern seaboard across the south, has increased in volume and value.

In the early part of the decade, the value of Texas wood delivered to sawmills was around $500 million a year. In 1996 and 1997, the value surpassed $1 billion and is poised to stay there. According to the Texas Forest Service, the price of pine sawlogs, a major category of lumber, increased by 119 percent between 1990 and 1998, to $414.51 per thousand board feet from $189.22.

Aided by changes in state tax laws approved by the 1999 Legislature that will reduce the industry's taxes by some $82 million through 2004, the Texas timber industry can be expected to keep growing. The new tax treatment should make Texas timber producers more competitive with those in other timber states and encourage replanting of Texas forests. The result should encourage reinvestment in timber jobs.

"The tax bill will provide much needed relief," said Weihuan Xu, a resource economist with the Texas Forest Service.

Timber in Texas
The timber industry has long been a mainstay in East Texas and its influence has grown in recent years.

Forty East Texas counties produce significant amounts of timber, according to the Texas Forest Service. All but two of them had timber harvests worth more than $1 million in 1997. Six counties had harvests valued at more than $50 million in 1997. Polk County is the state's top producer, with a timber harvest worth more than $71 million.

Texas is the nation's 10th biggest timber producer. In 1992, Texas timber companies harvested about 1.25 billion board feet; by 1997, the total had jumped to more than 1.37 billion board feet--enough to build and finish more than 52,000 homes of 2,000 square feet.

Housing is where much Texas wood ends up. Softwood, mostly Southern yellow pine, is Texas' primary wood product. Yellow pine, used to make two-by-fours and other products, is a fundamental structural component for most residential housing, including single-family homes and two- and three-story apartment buildings.

As environmental concerns grew over the fate of the spotted owl in Northwest forests, Xu said, more production shifted to the loblolly pine forests of the South. About 91 percent (187 million acres) of the South's timberlands are privately owned; the timber industry owns 42 million acres of this total.

As prices have increased, timber has become a more profitable investment, Xu said. Oregon, Washington and California have remained the top producers of timber throughout the decade, but only now are their production numbers returning to levels posted in earlier years.

Production in southern states, by contrast, has increased in the 1990s. Georgia is the leader in the South, with 3.1 billion board feet in 1997, up from 2.7 billion board feet in 1992, according to the U.S. Department of Commerce.

The overall industry is just now pulling out of a low point in its boom-and-bust business cycle. Prices for wood products are rising because of a booming housing market and increasing demand for paper and pulp products.

Wood workers
Employment in Texas forestry, the growing and nurturing of trees, was fewer than 1,000 in 1998. These jobs include timber planting (68 percent), fire prevention, fire-fighting and forest ranger positions (29 percent) and forest nurseries (3 percent) as well as a small number of jobs in forestry services, timber appraisal and consulting.

But as wood is processed and its value rises, so does the number of jobs created. Texas industries using timber create 98 jobs for every job in forestry. Forestry and these related wood-based industries combined provided around 97,000 Texas jobs and earned nearly $9.7 billion in 1998 gross sales.

Similarly, Texas' wood-based industries create nearly $10 in products for every dollar's worth of logs delivered to the sawmill. While most Texas agricultural products are sold as raw commodities to out-of-state processors, much timber is processed in Texas, keeping jobs and dollars in the state.

Texas industries related to timber include the manufacture of lumber and wood products (including logging and sawmill operations), paper and allied products and furniture and fixtures.

A wide variety of industries use and sell almost everything harvested from the forest. Many Texas pines deemed unsuitable for lumber use are harvested to manufacture plywood and other veneer products; even wood shavings and sawdust are commercially valuable.

Cutting timber taxes
Timber producers tend to receive special tax treatment from many states. A December 1998 survey of 12 top timber states by the Forest Manufacturers Council found that all except Texas provided various forms of property tax relief for timber producers, and the majority also offered sales tax breaks.

Texas timber producers haven't received similar treatment. Timber land is taxed based on a special appraisal formula similar to that used for farms and ranches, but usually is appraised more expensively. Agricultural land generally is taxed at about 80 cents an acre, while timber, until recently, was taxed at about $5 to $6 per acre. Furthermore, Texas timber producers had fewer sales tax exemptions than their counterparts in other agricultural businesses.

This situation has encouraged owners of timberland to turn it over to other agricultural uses, such as cattle grazing. It has been estimated that one in every seven acres of non-industrial private Texas timberland is not being replanted with trees after harvest.

The 1999 Texas Legislature enacted significant new tax relief for the state's timber industry in S.B. 977 by Senator Bill Ratliff of Mount Pleasant. Ratliff, Rep. Paul Sadler of Henderson and Comptroller Carole Keeton Rylander worked to change the tax code so it treats timber producers much the same as farmers and ranchers.

The Comptroller's office estimates that in 2002 Texas timber producers will save $6.5 million in state taxes, $9.5 million in local school property taxes and another $4.2 million in other local taxes.

Sales tax exemptions will cover seedlings, fertilizer, insecticide and machinery and equipment used in timber production. The largest share of those tax savings, $53.8 million, will go to timber producers. The law also exempts the sale and purchase of machines, tractors, truck, trailers and semi-trailers used in timber operations. The exemptions become effective Oct. 1, 2001.

In addition, changes in the state's property tax code should provide an estimated savings of $28.1 million through 2004 and encourage the continued replanting of timber land. The new tax law provides a 50 percent exemption off the value of timberland defined as an "aesthetic management zone." Such zones include lands left intact near streams to protect water quality as well as roadside areas and lands designated for forest preservation, critical wildlife habitat or erosion control.

Finally, the new tax laws grant a 50-percent exemption for 10 years off the appraised value of newly harvested timberland.

Legislation pending in Congress is designed to encourage reforestation. The bill, proposed by Rep. Jennifer Dunn of Washington, would change the federal income tax treatment of reforestation expenses by lowering the capital gains tax rate on timber when sold.

The bill reduces the capital gains paid on timber for individuals and corporations by 3 percent each year up to 50 percent. Because this reduction would apply to both companies and individuals, it minimizes the differences in which neighboring tracts of the same timber are taxed at different rates because of the business form of their investment.

"By extending tax credits for all reforestation expenses, Congress encourages companies to invest in protecting the environment, while running their business," Dunn said.


From Our Readers

We want to hear from you! Beginning with this issue of Fiscal Notes, we are printing comments, letters and e-mails from our readers.

To contact us, call 1-800-531-5441, ext. 3-4900; or 463-4900 in Austin, or write to P.O. Box 13528, Austin, Texas, 78711-3528. Internet users may send comments to fiscal.notes@cpa.state.tx.us.


Dear Texas Taxpayer:

In my efforts to streamline our office and create smaller, smarter government, I plan to keep you and other interested Texans posted on the latest news from my office through a special e-newsletter delivered every two weeks. The first edition was sent Oct. 1.

It is an opportunity for you to receive information and Internet links to the latest agency publications, press releases, school district performance reviews and other materials of taxpayer interest via e-mail. I hope these links help you keep up with the latest developments in Texas state government. If you would prefer not to receive this newsletter, simply send an e-mail to enewsletter@cpa.state.tx.us that states "UNSUBSCRIBE" in the subject line of the message.

This is one of the ways we are using technology to deliver better service to you. Sincerely,

Carole Keeton Rylander


From the Comptroller:
Setting a good example

I am a staunch believer in public education and in public accountability. Texas has many outstanding school districts, doing an exemplary job of educating our children. These districts are to be commended and their performance imitated.

In recent months, however, instances of test tampering, bogus dropout rates and inaccurate financial reporting in some districts have alarmed parents and set a disturbing example for our schoolchildren. And most disturbingly, districts across Texas are reporting that only 52 cents out of every education dollar is being used for instruction and that number is dropping.

That is why, as education watchdog for the people of Texas, I have created a Public Education Integrity Task Force to shine a bright light on these issues. I am pleased that Texas A&M University System Chancellor Emeritus Dr. Barry Thompson--a driving force for education in Texas for 41 years--has agreed to chair the task force. Joining him will be former District Judge Roy Barrera, Jr. of San Antonio; former State Representative Wilhelmina Delco of Austin; the founder and publisher of Texas Monthly, Michael Levy; an education innovator, Thaddeus Lott of Houston; elementary school principal, Beatrice Lucio Rodriguez of Brownsville; and the Executive Director of the Texas Classroom Teachers Association, Jeri Stone.

I've asked these talented leaders to identify systemic weaknesses, to develop recommendations to tighten controls in the system and to suggest long-range solutions.

The task force is charged to discover what is fostering a climate in which cheating is permissible, and worse, considered justifiable. I've asked the task force to report its findings by August 2000, so we can use them as the basis for recommendations to the 2001 Legislature.

In addition, in line with my desire to return control to communities and individuals and to use technology to cut costs and increase quality, I also have created the Comptroller's School District Watch List. It will allow parents and other taxpayers to compare their school districts to others around the state in key categories. They can evaluate their districts' staffing and academic and financial performance. The list can be found at http://notescpa3.cpa.state.tx.us/districts.nsf

Nothing is more important than education. We must have an educated workforce for the 21st century: our next generation must compete not only with those from New York and California but Europe and Asia. That's why reforming our education system is my top priority.

-CAROLE KEETON RYLANDER
Texas Comptroller of Public Accounts


10 Principles for Texas
in the New Century

* Develop a better-educated workforce
* Direct more of every education dollar into the classroom
* Raise the bar on student performance
* Cut taxes in Texas
* Introduce competition into Texas government
* Improve government performance and accountability
* Reduce the size of government
* Bring common sense to regulations
* Use technology to cut costs and increase quality
* Return control to communities and individuals


Comptroller News

Comptroller begins Galveston ISD performance review

A Texas School Performance Review of the Galveston Independent School District marks the first time that a school district will pay for a portion of the review.

Texas Comptroller Carole Keeton Rylander's staff will begin the review in early November. The Galveston ISD Board of Trustees requested the review and agreed to pay 25 percent of the cost.

"Galveston should be an example to other school districts that are considering requesting a performance review," Comptroller Rylander said. "The initial investment by Galveston school officials will bring a much greater return for the Galveston schoolchildren in a more efficient district."


Comptroller names Taxpayer Ombudsman

Texas Comptroller Carole Keeton Rylander has appointed Jesse Ancira as the agency's Taxpayer Ombudsman. In this new role, created under the revised Taxpayer Bill of Rights, Ancira will work with the agency's tax divisions to resolve taxpayers' problems and report the findings to Rylander.

Ancira, who is also the agency's legislative liaison, can be reached on the toll free number 877-OMBUDS-5 (877-662-8375) or in Austin, 512-463-2354. and at ombudsman@cpa.state.tx.us.

"Jesse Ancira will carry out the spirit and letter of our Taxpayers Bill of Rights," Comptroller Rylander said. "He will make sure Texas taxpayers are treated fairly and efficiently."


TSPR recognized for public service

The Texas School Performance Review (TSPR) is a finalist for the 1999 Innovations in American Government award. The annual public service award is sponsored by the Ford Foundation and administered by the John F. Kennedy School of Government at Harvard University.

The 25 finalists--programs covering education, performance measurement, housing, environment and domestic violence--each received a $20,000 grant from the Ford Foundation. Ten will be chosen in mid-October to receive an additional $80,000 to be used to spread their programs.

TSPR has studied 34 school districts and has proposed more than 3,000 ways to cut costs and move more dollars into Texas classrooms. TSPR recommendations accounted for almost $380 million in potential savings to local taxpayers and $85 million in actual savings.

Other Texas finalists are San Antonio's Neighborhood Sweep program and Farmers Branch's tax dividend program.


Scholarship information updated

The Compendium of Texas Colleges and Financial Aid Calendar, a project of the Minnie Stevens Piper Foundation and the Texas Guaranteed Student Loan Corp., has been updated on the Comptroller's Window on State Government.

Since 1967, the foundation has published the compendium, which has been distributed to high school counselors. It became a part of Window on State Government in early 1997.

The compendium lists all Texas colleges and universities, public and private, with information on admission requirements, costs, financial aid, application deadlines and scholarships available to Texas students.

The Web site reports on federal as well as state financial aid programs and describes more than 100 scholarship programs for which students may apply. It is located at www.window.state.tx.us/scholars/.


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